UK property prices set to rise by 15% by end of 2012, according to economists

There will be no collapse in UK residential real estate prices in 2010 and properties will be worth around 15% more at the end of 2012 than they are today, it is claimed.

A severe supply shortage will continue to act as a driving force for property prices and this is likely to have an effect on the real estate market for five years, says a report from the Centre for Economics and Business Research.

It points out that a sterling crisis would force the Bank of England Monetary Policy Committee’s hand. But this aside, rates will be held at 0.5%, keeping mortgages cheap which will also help boost the property market.

‘We still expect house prices to be around 15% higher at the end of 2012 than today,’ said Ben Read, CEBR managing economist. Estate agents Chestertons and Hamptons are also forecasting a rise of between 2 and 4% in 2010.

Others though are less optimistic. Although property prices fell 1.9% in December on an annual basis they and are set to drop another 1% in 2010, according to the latest index from property data company Hometrack.

Last year Hometrack predicted prices would fall 10% in 2009 but a recovery in prices in the latter part of the year has made it a better 12 months than many predicted with some indices, most notably from the Halifax and Nationwide, showing that prices rose by around 2% in the year to November.

An unexpectedly buoyant demand and a chronic lack of properties for sale were the key drivers of the real estate market in 2009, according to Richard Donnell, director of research at Hometrack.

‘While a scarcity of housing for sale is set to remain an important feature of the market in 2010 it is the prospects for demand that will dictate the outlook for prices in the next 12 months,’ he said.

Estate agents surveyed by Hometrack reported a 41% increase in registrations from prospective buyers in 2009, while the supply of property rose by just 7%. Hometrack said this pattern was likely to continue in 2010, with a pace of sales equivalent to the average household moving just once every 25 years leading to volatile prices.

However, a probable rise in unemployment and growing concern about tax rises and spending cuts after an election due by June were likely to limit demand, it also said. Against the backdrop of low sales volumes, equity-rich households could continue to put upward pressure on prices in localised markets in 2010. Yet a sustainable and broad based recovery in the housing market needs a broader base of buyers,’ Donnell added.